Schmidt urges Kansas Legislature to pay off KPERS debt, increase rainy day fund with surplus dollars

TOPEKA, Kan. (WIBW) - Kansas Attorney General Derek Schmidt has urged the Kansas Legislature to move cautiously and pay off the KPERS debt as well as increase the state’s rainy day fund with surplus dollars seen at the end of 2021.

Kansas Attorney General Derek Schmidt says he has urged the Legislature to move cautiously in response to projected large increases in the state’s revenue.

“The State of Kansas has an unprecedented amount of cash on hand and projections to collect much more for several years to come. As legislators and the governor craft the new state budget, I strongly encourage a cautious approach,” he said.

Schmidt said when he served as Senate Majority Leader, projections showed money would flow into state coffers for years to come - it did not.

“The 2008 financial crisis came abruptly, and everything quickly changed,” he said. “That led in 2009 and 2010 to painful budget cuts and broken promises in many important services and to the then-largest sales tax increase in state history (over my objection).”

“Let’s not do that again. Projected revenues sometimes never actually appear. So proceed conservatively,” he continued.

Schmidt said there is added reason for caution this time around. He said almost every state has a booming revenue because of spending decisions made by Congress and the Biden Administration in 2021. He said these states are spending money at a “breakneck pace.”

The point, Schmidt said, is that the Sunflower State did very little to cause the revenue boom and will be ill-equipped for a revenue bust. He said the current projections are not sustainable - what goes up must come down eventually.

“Kansas should responsibly prepare for that day now. Far better to proceed cautiously knowing that if revenues in fact continue to grow as projected, Kansas can consider further priorities in future years. A measured approach is better than overcommitting now and having to break promises in the future,” Schmidt said.

Schmidt recommended the state dedicate at least $1 billion in 2022 to pay off state debt in the Kansas Public Employees Retirement System, which is still owed $5 billion. He said this is a legal debt that is required to be paid eventually and aggressively prepaying at least $1 billion now will save taxpayers hundreds of millions in debt service - more than $400 million over the next five years.

Schmidt said the move would benefit taxpayers and free up over $70 million each year to help sustain public education, transportation and social services or make future tax relief possible. He said it would also bring the state public pension system to more than 80% funded, which is an industry target the state has long worked toward.

Second, Schmidt said the state should set a significant portion of the money aside in its rainy day fund to help protect vital services like public education, transportation and social services when the next inevitable economic downturn comes.

“If Kansas had a rainy day fund when the bottom fell out of the economy in 2008, some of the broken promises to Kansans who rely on state services – or perhaps the enormous tax increase of 2010 – would have been avoided or at least minimized,” he said. “The more the better, but setting aside at least $500 million for a rainy day seems possible and prudent.”

Schmidt said even with taking the responsible steps mentioned above, other important state priorities can still be met with funds currently available. For example, he said it would remain possible to do the following:

Significantly reduce or eliminate the sales tax on groceries. It could also be possible to reverse the remaining 2010 overall sales tax rate increase.
Protect the state’s long-term investment in transportation and permanently close the “Bank of KDOT” by ending transfers out of the transportation fund.
Keep a sufficient end balance in the state’s general fund to avoid cash-flow problems.

Schmidt said these steps would still leave room for the Legislature to responsibly support many of the other core priorities important to Kansans like mental health, education, public safety and disaster relief for areas damaged by the December wildfires.